The Economics of Death part 3 – The Funeral Industry in Australia
At any one time the funeral industry in Australia has about twenty-six million potential customers, all of which will, at some time, will become active customers. However, unlike other industries, the industry in aggregate cannot advertise or invest to actively increase demand, with the exception of promoting pre-paid funerals. Instead, it accepts the deathrate as exogenous and concentrates on internal competition of the existing market.
(Figure generated by Bing Chat)
Introduction
At any one time the funeral industry (sometimes referred to as the death care industry) in Australia has about twenty-six million potential customers, all of which will, at some time, become active customers, subject to differing time lags. However, unlike other industries, the industry in aggregate, and in the interests of good taste, cannot advertise or invest to actively increase demand such as increasing the death rate. As such competition in the funeral industry is internal with companies within the industry competing for a market currently valued at $1.6 billion in Australia. They do this through product differentiation, carving the market up geographically (normally (by State) and to a limited extent, price competition (including differing and financing arrangements including pre-paid funerals. However, in 2024 , the funeral industry in Australia can best be classified as a mature oligopoly, with four firm concentration ratios at 0.5 and an eight-firm concentration rate at 0.8. It follows the classic kinked demand curve with quasi upward price stickiness and downward price elasticity
This long-term oligopoly-based stability, as with many other industries, is facing disruption from technological progress in terms of client processing, conforming to cultural expectations, providing information services to grave site visitors, meeting changing environmental standards and allocating declining space availability.
Industry Structure
The industry is highly concentrated with an eight-firm concentration ratio of 0.8. The largest firm is InvoCare Limited: which controls around 25.6% of the market. InvoCare owns several well-known brands, including Le Pine Funerals and White Lady Funerals. The second largest is Propel Funeral Partners: The second largest operator, Propel Funeral Partners, manages around seventy funeral homes, cemeteries, and crematoria across all states, with about 17% of the market. Other prominent are predominantly state based including Tobin Brothers: (Victoria,), David Walker (New South Wales,) KM Smith (Queensland) and Bowra and O’Dea: (Western Australia)
Barriers to Entry
This high concentration is driven by significant barriers to entry including:
Regulatory Requirements: The industry is subject to various complex and costly regulations and standards that must be met, including health and safety regulations, environmental laws, and consumer protection laws.
High Start-Up Costs: This includes costs for facilities, equipment, vehicles, and staff. Additionally, securing a suitable location can be expensive
Building Reputation and Trust: The funeral industry relies heavily on reputation and trust. New entrants must invest time and resources into building a credible reputation and gaining customer loyalty, which can be challenging in a market dominated by established players
Capital Intensity: The industry is capital-intensive, requiring significant ongoing investment in maintaining and upgrading facilities and equipment.
Labour Intensity: Funeral services require skilled labour, including funeral directors, embalmers, and support staff. Recruiting and retaining qualified personnel can be difficult, especially in a specialized field
Market Competition: The market is dominated by a few large companies, such as InvoCare and Propel Funeral Partners, which have significant resources and established market presence.
Consumer Preferences: The industry requires understanding of and meeting diverse consumer preferences and cultural practices. New entrants must be able to offer a range of services that cater to diverse cultural and religious needs
Product differentiation and Services offered
The industry offers a range of services and delivery models. These include
Funeral Planning and Coordination: Funeral directors coordinate all aspects of the funeral, including consulting with cemeteries, crematoriums, and other service providers.
Burial and Cremation Services: These include traditional burials, cremations, and sometimes more eco-friendly options like natural burials.
Transportation: This includes transporting the deceased from the place of death to the funeral home, and then to the final resting place.
Memorial Services: Organizing and conducting memorial services, which can be religious or secular, depending on the family’s wishes.
Coffins and Caskets: Providing a range of coffins and caskets to choose from, varying in materials and designs and cost.
Pre-paid Funeral Plans: Offering pre-paid funeral plans that allow individuals to plan and pay for their funeral in advance, easing the financial burden on their families.
Grief Support: Providing grief counselling and support services to help families cope with their loss.
Legal and Administrative Assistance: Assisting with the necessary legal and administrative tasks, such as obtaining death certificates and notifying relevant authorities
ROK Financial estimate the most profitable lines are coffins and caskets and Burial and Cremation Services (The Funeral Industry for Entrepreneurs – ROK Financial)
Profitability
he profitability of the Australian funeral industry is relatively robust, with an average profit margin of about 15%. By way of comparison, Mining averages 31%, retail (16%) and Construction 11% (Australian Industry, 2022-23 financial year | Australian Bureau of Statistics) However, the Australian funeral industry is less subject to variation and a long term average profitability of 15% reflects the industry’s ability to generate significant revenue from various services and products, despite facing challenges such as regulatory compliance and fluctuating demand.
Public Image
Standard procedure in the industry is to project a tasteful and conservative image in keeping with main activities. However, the industry has been accused of anti-competitive behaviour. In 2004, Cottle and Keys warned of the monopolisation of the funeral industry (The monopolisation of the Australian funeral industry? – Western Sydney University.
Crikey.com has provided harsh criticism In recent years with stories such as : “Preying on Grief: The inside story of the nations’ $1.6 Billion funeral industry (The inside story of Australia’s $1.6 billion funeral industry) and “The depths the funeral industry sinks to when selling and upselling to the bereaved (The depths the funeral industry sinks to when selling to the bereaved) Readers are advised to consult these articles.
Technological change
Technology has had a profound impact on the funeral industry. Innovations such as online memorials, virtual funerals, and digital legacy services have transformed how people interact with the industry These advancements offer new ways to connect and remember, especially in an increasingly digital world. Additionally, technology has improved operational efficiencies within the industry, from advanced embalming techniques to automated record-keeping systems.
Future Trends
The future of the funeral industry is likely to be shaped by several key trends. As society becomes more environmentally conscious, demand for green burials and eco-friendly products is expected to rise. Personalization will continue to be a significant trend. Moreover, the integration of technology will further alter both the production costs and product delivery
Conclusions
The Funeral industry in Australia is heavily concentred and, as a result, some elements of competition such as price competition play a less key role than in other industries in the Australin economy. The product is also something most consumers do not wish to purchase at all, or at least wish to delay purchase as long as possible. On the other hands, the industry knows that short of do-it-yourself burials at sea becoming popular, a sale is inevitable. This poses unique problems for sales and marketing within the industry. It confines itself to competing against other large) firms in an oligopolistic market for existing market share rather than attempting to grow the overall market, except for pre-paid funerals. This unfortunately is left to life expectancy and medical trends, acts of God, trends in aging, the accident rate, and wars
